Japan’s Accounting Problem

Japan, it seems clear, is monetizing several trillion dollars of government debt. And, despite the orthodox fear that monetization inevitably fuels dangerous inflation, the most likely market reaction will be a yawn.

TOKYO – Over the next few years, it will become obvious that the Bank of Japan (BOJ) has monetized several trillion dollars of government debt. The orthodox fear is that printing money to fund current and past fiscal deficits inevitably leads to dangerous inflation. The result in Japan probably will be a small up-tick in inflation and growth. And the financial markets' most likely reaction will be a simple yawn.